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The shock announcement in today’s Autumn Statement by the chancellor also revealed that there will be an extra 30,000 student places next year as an interim step before abolition of the cap.

Mr Osborne said the expansion would be funded by the sale of the student loan book.

The chancellor said figures show that under the coalition’s new system, “this year we have the highest proportion of young people from disadvantaged backgrounds applying to university ever”. “But there is still a cap on aspiration,” he warned.

Mr Osborne continued: “Each year, around 60,000 young people who have worked hard at school, got the results, want to go on learning and want to take out a loan to pay for it, are prevented from doing so because of an arbitrary cap.

“That makes no sense when we have a far lower proportion of people going to university than even the United States, let alone countries like South Korea.

“Access to higher education is a basic tenet of economic success in the global race.”

He continued: “So today I can announce that next year we will provide 30,000 more student places – and the year after we will abolish the cap on student numbers altogether.

“Extra funding will be provided to science, technology, and engineering courses.

“The new loans will be financed by selling the old student loan book, allowing thousands more to achieve their potential.”

A document published by the Treasury to accompany the statement added extra detail, stating that the government “estimates that the cost of the extra implied subsidy in the medium term will be around £700 million a year”.

The document adds: “This expansion is affordable within a reducing level of public sector net borrowing as a result of the reforms to higher education finance the government has enacted. The additional outlay of loans over the forecast period will be more than financed by proceeds from the sale of the pre-reform income-contingent student loan book.”

It also confirms that the cap will be removed “at publicly-funded higher education institutions in England by 2015-16”, with alternative providers also being freed in a “similar manner” that year.

“The government will continue to closely monitor quality of provision across the sector and reserves the right to reimpose number controls on institutions that expand their student numbers at the expense of quality,” the document says.

Universities UK raised concerns about the policy. Nicola Dandridge, chief executive, said it was “good news that the government is committed to expanding student numbers”.

However, she added: “We will need to understand how this is sustainable in the long-term, given that this policy is being funded in coming years by the asset sales. We also need clearer information on future cuts to the BIS budget.”

Libby Hackett, chief executive of University Alliance, said: “The announcement of additional student places is excellent news for the students, universities and the UK.

“This shows that the government are future focussed and fully recognise the role that graduates and universities play in driving the UK economy towards a more prosperous future.

“These extra places will ensure the UK can meet the need for additional highly skilled graduates helping us meet the demands of the future economy.

“Despite the difficult climate for all young people entering the job market it is still the case that a degree is by far the best route for most individuals. Universities will work hard to help with the transition into employment for all students.”

How will the government fund future students who whose loans would have been funded from loan book income?
Is it numbers or quality that is most important? Just putting more bums on seats in low quality universities will not propel us to the front in "the global race". It might leave many unhappy graduates who struggle to repay loans...when their expensive 3 years in Diddly-Doo university proves of little value in the job market.

Great idea, but with most Universities now run as commercial enterprises, with the attendant 'management' structure, how long before the already overloaded academic and other student facing staff start going off sick in even greater numbers with stress?
Our VC actually congratulated the recruitment team for over loading US, some faculties are 25% over the cap. WE get 1%, again, not 25% to match the increased workload, unlike the central 'senior management' who always manage to fund a better than inflation rise for themselves...

So we are to get unfettered marketcompetition at last. If the sector thinks it has had things tough recently, wait until the effect of no SNC kicks in.
Until now the SNC has provided a safety net. This will no longer exist and a number of institutions are going to 'go to the wall' or, more likely, be taken over just before they hit it.

I think this is a move the Government has to take. I do think, however, that we may go back to the 'bums on seats' culture where VCs in the 'diddly-do' universities will be happy to take the dosh but where many of their graduates will feel empty and cheated with a loan to pay and no substantial job to go to.

The higher education sector and students' experience of the higher education is and needs to be exceptionally diverse. Different universities offer different types of experiences and we should celebrate that diversity rather than seek to demean it by using terms of abuse like "diddly-do universities."

Is this really a good move? It is of course admirable to encourage education and training but this needs to be relevant to students' outcomes and society's needs. We already have an abundance of unemployed and underemployed graduates and, simultaneously, a shortage of electricians and plumbers.

I am not sure what Mr Slack means by ‘Diddly-Do’ Universities or by what criteria he makes such a judgement. In my experience – and I visit a lot of Universities – the U.K. can continue to be extremely proud of the quality of education being delivered in the vast majority of institutions. I generally meet those who are teaching students and what I find are hard-working very talented academics who are constantly looking for ways to improve the student experience and who care deeply about the long term success of their graduates. I see very little difference in these attitudes and abilities across institutions or by ‘category’ of University.